In AD 25-03, the PRTD addressed the adoption of amendments by sponsors of qualified retirement plans to comply with the SECURE 2.0 Act.

Background

On December 29, 2022, the US President signed the SECURE 2.0 Act. The SECURE 2.0 Act amended the Internal Revenue Code of the United States (IRC) and ERISA. Some of the provisions of the SECURE 2.0 Act were effective on enactment, some went into effect in 2024 and some will be effective in 2025.

Puerto Rico retirement plans are subject to the qualification requirements of the Puerto Rico Internal Revenue Code of 2011 (PR Code), as amended, and Title I of ERISA, and may be subject to the qualification requirements of the IRC. To be a qualified retirement plan in Puerto Rico, trustees of those retirement plans must obtain a qualification letter from the PRTD. If a plan sponsor fails to obtain a qualification letter, the retirement plan will no longer be eligible for an income tax exemption under Section 1081.01(a) of the PR Code.

On December 23, 2016, the PRTD issued Tax Policy Circular Letter (CL) 16-08, under which a retirement plan sponsor must request a new qualification letter if it approves revisions to the plan or adopts one or more "qualification amendments." Tax Policy CL 16-08, however, stated that changes adopted to incorporate future changes to the qualification rules of the IRC or ERISA will not be considered qualification amendments.

AD 25-03

In line with the provisions of Tax Policy CL 16-08, the PRTD has determined that amendments adopted by sponsors of qualified retirement plans in Puerto Rico to comply with the SECURE 2.0 Act are amendments adopted to incorporate future changes to the qualification rules of the IRC or the ERISA rules. Therefore, those amendments will not be qualification amendments, as set out in Tax Policy CL 16-08. If a qualified retirement plan is modified to adopt the provisions of the SECURE 2.0 Act, the plan will not have to request a new qualification letter.

Amendments that will not be considered qualification amendments include, but are not limited to:

• Section 125. Amendments to allow long-term part-time employees, as defined in the SECURE 2.0 Act, to participate in the retirement plan, including amendments to expand eligibility for the plan and allow those employees to make voluntary contributions, effective for plan years beginning after December 31, 2024
• Section 304. Amendments to increase the limit for distributions of small amounts from the plan, including amendments to increase the limit on automatic distributions of small balances when an employee is no longer employed and does not request a distribution, effective for distributions after December 31, 2023
• Section 107. Amendments to comply with the new minimum required distribution rules under the IRC
• Section 110. Amendments to incorporate the matching provisions for student loan payments made by participants, including amendments to allow the plan sponsor to make matching contributions based on the payments its employees make toward their student loans

Effective date

AD 25-03 is effective immediately and applies to retirement plan tax years beginning after December 29, 2022.

Implications

The guidance in AD 25-03 streamlines the compliance process by not requiring a plan sponsor to apply for a new qualification letter when the sponsor of a qualified retirement plan in Puerto Rico makes amendments to adopt the provisions of the SECURE 2.0 Act.

However, any amendments made by sponsors of existing retirement plans qualified under the PR Code, alongside the adoption of SECURE 2.0 Act provisions, are not covered under this guidance and must be evaluated to decide if they must be submitted to the PRTD.